The economic data were clouded by the effects of Hurricane Sandy and in most cases it’s impossible to isolate the storm’s impact. Retail sales fell 0.3% in October, although Sandy had both positive and negative effects. Initial claims for unemployment insurance benefits jumped, similar to the increase seen after Katrina in 2005. Industrial production fell 0.4% and Federal Reserve economists estimate that Sandy shaved a full percentage point from the headline production figure. Factory output fell 0.8%, but would have been flat if not for Sandy.

Currently, the Fed is buying about $40 billion per month in Mortgage-Backed Securities as part of its Large-Scale Asset Purchase program (QE3, funded by the creation of money) and about $45 billion in long-term Treasuries through its Maturity Extension Program (“Operation Twist”, funded by selling short-term Treasuries out of its portfolio). Operation Twist ends in December.

There’s widespread expectation that the Fed will then begin to purchase Treasuries in QE3. The October FOMC minutes and Fed Bernanke’s latest speech reinforce this view. The FOMC minutes noted that “a number of participants indicated that additional asset purchases would likely be appropriate next year after the conclusion of the maturity extension program in order to achieve a substantial improvement in the labor market.” Bernanke said that he and other Fed officials “remain quite concerned about the stubbornly high level of unemployment – particularly long-term unemployment.”

Next week, the economic data reports are expected to remain overshadowed by concerns of the fiscal cliff, but don’t expect much progress in Washington. Figures are likely to reflect some distortions from Sandy. Fed Chairman Bernanke will speak on “The Economic Recovery and Economic Policy” on Tuesday afternoon. Also, you might want to keep an eye on what’s going on in the Middle East. Have a great Thanksgiving.

Indices

Last

Last Week

YTD return %

DJIA

12542.38

12811.32

2.66%

NASDAQ

2836.94

2895.59

8.90%

S&P 500

1353.33

1377.51

7.61%

MSCI EAFE

1479.42

1503.15

4.73%

Russell 2000

769.48

793.65

3.85%

Consumer Money Rates

Last

1-year ago

Prime Rate

3.25

3.25

Fed Funds

0.17

0.06

30-year mortgage

3.34

4.00

Currencies

Last

1-year ago

Dollars per British Pound

1.586

1.584

Dollars per Euro

1.277

1.354

Japanese Yen per Dollar

81.130

77.030

Canadian Dollars per Dollar

1.003

1.022

Mexican Peso per Dollar

13.257

13.549

Commodities

Last

1-year ago

Crude Oil

85.45

99.37

Gold

1712.92

1781.65

Bond Rates

Last

1-month ago

2-year treasury

0.24

0.29

10-year treasury

0.61

1.80

10-year municipal (TEY)

2.78

2.89

Treasury Yield Curve – 11/16/2012

S&P Sector Performance (YTD) – 11/16/2012

Economic Calendar

November 19th

—

Existing Home Sales (October)
Homebuilder Sentiment (November)

November 20th

—

Building Permits, Housing Starts (October)
Bernanke Speaks

November 21st

—

Consumer Sentiment (November)
Leading Economic Indicators (October)

November 22nd

—

Thanksgiving (markets closed)

November 27th

—

Durable Goods Orders (October)
Consumer Confidence (November)

November 28th

—

New Home Sales (October)
Fed Beige Book

November 29th

—

Real GDP (3Q12, 2nd estimate)

November 30th

—

Personal Income, Spending (October)

December 7th

—

Employment Report (November)

December 12th

—

FOMC Policy Decision, Bernanke Press Briefing

Important Disclosures

Past performance is not a guarantee of future results. There are special risks involved with global investing related to market and currency fluctuations, economic and political instability, and different financial accounting standards. The above material has been obtained from sources considered reliable, but we do not guarantee that it is accurate or complete. There is no assurance that any trends mentioned will continue in the future. While interest on municipal bonds is generally exempt from federal income tax, it may be subject to the federal alternative minimum tax, state or local taxes. In addition, certain municipal bonds (such as Build America Bonds) are issued without a federal tax exemption, which subjects the related interest income to federal income tax. Investing involves risk and investors may incur a profit or a loss.

US government bonds and treasury bills are guaranteed by the US government and, if held to maturity, offer a fixed rate of return and guaranteed principal value. US government bonds are issued and guaranteed as to the timely payment of principal and interest by the federal government. Treasury bills are certificates reflecting short-term (less than one year) obligations of the US government.

Commodities trading is generally considered speculative because of the significant potential for investment loss. Markets for commodities are likely to be volatile and there may be sharp price fluctuations even during periods when prices overall are rising. Specific sector investing can be subject to different and greater risks than more diversified investments.

The information contained herein has been obtained from sources considered reliable, but we do not guarantee that the foregoing material is accurate or complete. Data source: Bloomberg, as of close of business November 15th, 2012.